General Provisions of Deductions from Gross Total Income :
As we have seen earlier, section 10 exempts certain incomes. Such income are excluded from total income and do not enter into the computation process at all. On the other hand, Chapter VI-A contains deductions from gross total income. The important point to be noted here is that if there is no gross total income, then no deductions will be permissible. This Chapter contains deductions in respect of certain payments, deductions in respect of certain incomes and other deductions. Section 80A: (i) Section 80A(1) provides that in computing the total income of an assessee, there shall be allowed from his gross total income, the deductions specified in sections 80C to 80U.
(ii) According to section 80A(2), the aggregate amount of the deductions under this chapter shall not, in any case, exceed the gross total income of the assessee. Thus, an assessee cannot have a loss as a result of the deduction under Chapter VI-A and claim to carry forward the same for the purpose of set-off against his income in the subsequent year.
(iii) Section 80A(3) provides that in the case of AOP/BOI, if any deduction is admissible under section 80G/80GGA/80GGC/80-IA/80-IB/80-IC/80-ID/80-IE, no deduction under the same section shall be made in computing the total income of a member of the AOP or BOI in relation to the share of such member in the income of the AOP or BOI.
(iv) The profits and gains allowed as deduction under section 10AA or under any provision of Chapter VIA under the heading “C.-Deductions in respect of certain incomes” in any assessment year, shall not be allowed as deduction under any other provision of the Act for such assessment year [Sub-section (4)];
(v) The deduction, referred to in (iv) above, shall not exceed the profits and gains of the undertaking or unit or enterprise or eligible business, as the case may be [Sub-section (4)];
(vi) No deduction under any of the provisions referred to in (iv) above, shall be allowed if the deduction has not been claimed in the return of income [Sub-section (5)];
(vii) The transfer price of goods and services between such undertaking or unit or enterprise or eligible business and any other business of the assessee shall be determined at the market value of such goods or services as on the date of transfer [Sub-section (6)].
(viii) For this purpose, the expression “market value” has been defined to mean, –
(a) in relation to any goods or services sold or supplied, the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any;
(b) in relation to any goods or services acquired, the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any;
(ix) Where a deduction under any provision of this Chapter under the heading “C – Deductions in respect of certain incomes” is claimed and allowed in respect of the profits of such specified business for any assessment year, no deduction under section 35AD is permissible in relation to such specified business for the same or any other assessment year.
In short, once the assessee has claimed the benefit of deduction under section 35AD for a particular year in respect of a specified business, he cannot claim benefit under Chapter VI -A under the heading “C.-Deductions in respect of certain incomes” for the same o r any other year and vice versa.
Section 80AB: This section provides that for the purpose of calculation of deductions specified in Chapter VI-A under the heading “C – Deductions in respect of certain incomes”, the net income computed in accordance with the provisions of the Act (before making any deduction under Chapter VI-A) shall alone be regarded as income received by the assessee and which is included in his gross total income. Accordingly, the deductions specified in the aforesaid sections will be calculated with reference to the net income as computed in accordance with the provisions of the Act (before making deduction under Chapter VI -A) and not with reference to the gross amount of such income. This is not withstanding anything contained in the respective sections of Chapter VI-A.
Section 80AC: Furnishing return of income on or before due date mandatory for claiming exemption under sections 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID and 80-IE
(i) Section 80AC stipulates compulsory filing of return of income on or before the due date specified under section 139(1), as a pre-condition for availing benefit under the following sections –
(1) Section 80-IA applicable to undertakings or enterprises engaged in infrastructure development, etc.
(2) Section 80-IAB applicable to undertakings or enterprises engaged in any business of developing a special economic zone.
(3) Section 80-IB applicable to certain industrial undertakings other than infrastructure development undertakings.
(4) Section 80-IC applicable to certain undertakings or enterprises in certain special category States.
(5) Section 80-ID applicable to undertakings engaged in the business of hotels and convention centres in specified area.
(6) Section 80-IE applicable to certain undertakings in North-Eastern States.
(ii) The effect of this provision is that in case of failure to file return of income on or before the stipulated due date, the undertakings would lose the benefit of deduction under these sections.
Section 80B(5): “Gross total income” means the total income computed in accordance with the provisions of the Act without making any deduction under Chapter VI -A. “Computed in accordance with the provisions of the Act” implies—
(i) that deductions under appropriate computation section have already been given effect to;
(ii) that income of other persons, if includible under sections 60 to 64, has been included;
(iii) the intra head and/or inter head losses have been adjusted; and
(iv) that unabsorbed business losses, unabsorbed depreciation etc., have been set-off.
Let us first consider the deductions allowable in respect of certain payments.